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The Diversification Strategy Of Planting Five Flags

10 Aug
Diversification Strategy: Planting Five Flags

My Preferred Jurisdictions, Flag By Flag

I’m reviewing and clarifying my ideas related to the Five Flags theory of diversification in preparation for my opening remarks at the Wealth Summit I’m hosting in Panama in October.

If you’re new to the idea, the Five Flags are to do with residency, citizenship, banking, assets, and business. Not everyone needs all five flags planted in different jurisdictions, but the goal should be to plant whichever ones you do need in different jurisdictions. Moving to another country and taking all your cash, investments, and business activities with you to that new country doesn’t achieve the real goal of going offshore.

Fortunately, different countries shine for different reasons. Some are better for banking, others for investing, some for residency, and yet others as places to incorporate your business. No country gets “A” ratings on all fronts.

Panama is one country that comes close. Banking options are great in Panama, with more than 80 banks operating here. Most won’t open a consumer account for you unless you have a “connection” to Panama either through residency or because you own real estate in the country. Private banking accounts are easier to open, but require minimum balances, from US$25,000 to US$1 million at the high end. It’s also possible to open a corporate account if you open a Panamanian corporation. Investment opportunities in Panama are mostly related to real estate—rental investments, timber, land banking, development, and agriculture.

Using Panama as a base for incorporating your business can make sense as the country doesn’t tax entities that aren’t operating in Panama. You can set up a business in Panama and have an office in the country and still pay no Panama taxes if all your income is derived from outside Panama or if your business qualifies under the rules of one of the incentive areas of Panama Pacifico or the City of Knowledge.

Panama offers many options for residency, including the new Specific Countries residency visa that has been expanded to include 48 countries. If you hold a passport from one of these countries, residency (and I mean permanent residency) is straightforward. If you don’t hail from one of those 48 countries, you still have a dozen other residency options in Panama, including a very easy retirement residency option.

Even though Panama offers good choices related to nearly all the Five Flag agendas, you don’t want to plant all your flags here. Choose one or maybe two to base in this country and then look to other jurisdictions for the others.

If you decide to live in Panama, then you’ll want a local bank account, but you should plant a banking flag in another country, too. Don’t bring the bulk of your assets with you to Panama if you plan to live here. And incorporate your business here only if you need a local company for operations.

The Best Options For Investing Offshore

What other jurisdictions should you be looking at? We’ll discuss the best choices right now in more detail at the upcoming Wealth Summit. Here’s a short list to help focus your thinking in the meantime:

Banking: Belize, Uruguay, Singapore

Residency: Uruguay, Ireland, Malaysia

Citizenship Through Residency: Ireland, Uruguay, Dominican Republic

Citizenship Through Ancestry: Dictated by where your family is from

Economic Citizenship: Dominica, St. Kitts, Grenada

Assets/Investment: My focus, of course, is real estate. In this context, I recommend Colombia and Panama for yield and Uruguay, Colombia, and Brazil for farmland. Other markets I like right now include Portugal (for both good yields and appreciation), Turkey, and Paraguay.

Asset Protection: Belize, Cook Islands

Incorporating Your Business: Singapore, Nevis, Panama

Of course, conceiving a successful personal diversification strategy is more complicated than simply choosing where to plant your various flags. Coordination and integration are key if you want to protect your assets, minimize your tax burden, and leave as much as possible for your kids (as we all do, of course). Still, this list will get you started.

Lief Simon

Mailbag

“Lief, in a recent post, your editor Lee Harrison lists five countries where holding real estate could lead to residency (and therefore possibly citizenship and the coveted second passport). I’m wondering how this option works (or doesn’t) with your recent suggestion that holding real estate in an entity is preferred because using one’s own name is usually not a good path.

“Thanks for your help and all the work your team does to educate us all out here!”

N.P.

It depends on the country. Some countries allow you to hold the real estate in an entity and still be eligible for residency. This is the case in Colombia, for example… but not Panama. Fortunately, though, transfer taxes in Panama are low (2%), so, once you have established residency, you could transfer the property to an entity, if you wanted, without investing a lot more money.